Tax changes, MBTA Control Board featured in budget accord

The annual state budget compromise agreed to Tuesday by a six-member conference committee would eliminate a corporate tax break that has been suspended every year since its inception to pay for increased tax credits to low-income workers.

The $38.1 billion bill (H 3650) would also suspend for three years a law requiring a vetting process before privatization of services at the MBTA, giving Gov. Charlie Baker a partial win on a key reform he proposed for the transit agency.

At a briefing in her office Tuesday night, Senate Ways and Means Chairwoman Karen Spilka said the budget increases spending by 3.5 percent, less than the predicted 4.8 percent consensus on revenue growth. Spending growth in last year’s budget required midyear cuts and a budget-balancing bill. Spilka also said she did not anticipate layoffs would be required to accommodate slower spending growth.

The Ashland Democrat said the budget increases funding for rental vouchers by about $20 million and also provides additional funds to emergency shelter including $2 million in new funding for housing and services for unaccompanied homeless youth.

Increasing unrestricted local aid by $34 million and local education aid by $111.2 million, the budget also establishes a bulk purchasing program for Narcan, an emergency medication to treat drug overdoses.

The bill, which was brought to the clerk’s office about two minutes before an 8 p.m. deadline, has 213 outside sections. The House and Senate are both meeting in formal sessions Wednesday when the compromise budget is expected to shipped to Gov. Baker’s desk.

The bill emerged from secret talks a week into fiscal 2016, and Baker will have 10 days to review it before signing it and announcing amendments and vetoes. The jacket of the conference report was signed by all six members of the House and Senate negotiating team, including the two Republicans.

“This bill includes a very promising start to the overall effort of fixing the MBTA. I want to thank Speaker [Robert] DeLeo and the House for their early adoption of the reforms necessary to increase the system’s efficiency as well as the House and Senate conferees for including these reforms in this legislation,” Baker said in a statement. Baker’s spokesman Tim Buckley said, “The Governor was pleased to offer a solution to the $1.8B inherited deficit that invested in critical areas like public education, transportation and the department of children and families without raising taxes on the people of Massachusetts and he looks forward to reviewing the legislature’s proposal soon.”

The three-year suspension of the privatization law at the T deals a blow to Senate President Pro Tem Marc Pacheco whose championing of the 1993 legislation led to it being called the Pacheco law.

The budget bill also gives the secretary of transportation the authority to hire an MBTA general manager, increases the size of the state Transportation Board and creates a temporary fiscal and management control board for the T.

At the budget briefing, Senate President Stanley Rosenberg said he had not yet talked to Pacheco about the final version of the budget suspending his signature law.

Under the Pacheco law, the auditor must first sign off on whether privatization will result in savings without reducing service. Spilka said under the compromise budget, the inspector general would review outsourcing contracts after they are complete.

The repeal of a corporate tax break known as FAS-109 would wipe from the books legislation that has never gone into effect. That repeal is linked to an increase of the earned income tax credit from 15 percent of the federal tax credit to 23 percent. Both Baker and Rosenberg have pushed for the credit’s expansion.

The $76 million in annual revenue that would be gained by permanently removing the corporate tax break is “almost exactly” the same amount as the cost of increasing the earned income tax credit, Rosenberg’s counsel David Sullivan told reporters.

Suspension of the tax break led the Supreme Judicial Court to deem the budget passed by the House a “money bill,” which means that actions the Senate later took around tax policy in its version were constitutional.

The final budget did not include either the Senate’s freezing of the income tax rate at 5.15 percent or an increase in taxes on flavored tobacco. The Senate had initially envisioned that an increase in the earned income tax credit could be funded by a freeze on the income tax, which is expected to ratchet down to 5 percent in future years because of economic triggers.

Funding the benefit for low-income workers to the repeal of a tax credit benefitting large multinational corporations is somewhat similar in style to Baker’s own proposed financing of an earned income tax credit increase. Baker, who disfavored freezing the income tax rate, had proposed paying for the earned income tax credit by repealing the film tax credit – a move opposed by House leaders.

The budget also requires passage of a special act of the Legislature before any public funds can be spent to benefit the proposed 2024 Boston Olympics.

The final budget did not include language directing MassHealth to contract with a provider organization for a Medicaid accountable care organization, an amendment that sparked a war of words between Steward Health Care and the Massachusetts Association of Health Plans.

Spilka said the budget “unfortunately” did not increase income eligibility requirements for home care assistance, which advocates said would avoid the need for costly nursing home service.

A House provision to increase the conservation land tax credit – which Rosenberg initially seized on to argue that the House budget was a “money bill” – was also not included in the final version, according to Spilka. Challenging the constitutionality of tax amendments adopted by the Senate, the House this year sought guidance from the Supreme Judicial Court. The court opined that the House’s suspension of FAS-109, which had been a regular feature of budget bills, made it a money bill where tax policy could be changed. The state’s constitution requires money bills to originate in the House. The full repeal would mean that next year the House would not have to send the Senate a money bill if it wanted to once again postpone the tax break.

The FAS-109 repeal and the earned income tax credit would both have a somewhat delayed effect.

“People would be filing in 2017,” Spilka said.

House Ways and Means Chair Brian Dempsey issued a joint statement with Spilka, and did not attend the press briefing held in her office or hold his own budgetary press conference on Tuesday.

Spilka told reporters they should not read anything into Dempsey’s absence, and said that the conference process had been beneficial in allowing her to learn more about the House’s priorities. Without specifying any sticking points, Spilka said neither side got everything it wanted and praised the final product.